14.1 A productivity measure is an indicator of the efficiency or effectiveness of production, that is how much production is achieved given a certain amount of resources, or inputs. The broadest definition of 'productivity', from the ILO, is "the ratio between output and the total input of factors required to achieve it". In this sense, productivity is "the end result of a complex social process including: science, research and development, education, technology, management, production facilities, workers' and labour organisations".

14.2 Most analyses seeking to measure productivity have confined themselves to a partial, or single factor, measure, as opposed to total factor (or multi-factor) productivity. Single factor measures of productivity are expressed as a ratio between a given measure of output and a given measure of onefactor of production (labour, capital, raw materials, etc.). It follows that there are many measures of productivity, each of which relates to a particular factor of production. Thus it is possible to speak of the productivity of labour, of capital, of raw materials, etc. Such measures reflect the growth in output not accounted for by the growth in that particular factor of production. Thus, the ratio of output to hours worked - often referred to as a measure of labour productivity - reflects the growth in output attributable to all factors of production other than hours worked. Often the measure used varies in accordance with the level at which productivity is analysed, e.g. plant, industry, branch of the economy or the economy as a whole.

14.3 Increases in labour productivity are often regarded as an indicator of improvements in aggregate living standards, as either more output (and thus total income) is achieved with given labour, or a given amount of output (and thus total income) is achieved with less time spent on labour.

CONCEPTS AND INTERNATIONAL GUIDELINES

14.4 While the ILO has published two studies (in 1951 and 1969) on the measurement of labour productivity, no fixed definitions have been promulgated by that organisation. The view taken in the 1969 study was that, while it was useful to have a set of definitions which correspond to the various measures of productivity, it was premature to set a single productivity ratio for each measure. At the same time it was recognised that time worked or labour force may be suitable measures of labour input, while physical output and value-based measures were appropriate for considering output for particular purposes. This flexibility remains appropriate depending on what use or analysis is to be performed with the productivity measure involved.
14.5 Considerations such as those led an ILO Working Group on Productivity Statistics to make recommendations, especially on the economic coverage of productivity series, the choice of units of measurement for output, and the corresponding labour input. While no recommendation was made as to which concept was most suitable for measuring national output, several participants in the Working Group preferred estimates at constant prices of gross domestic product at factor cost. In respect of the measurement of labour inputs, the concern was to ensure that account was taken of all the activities of all persons engaged in production.

14.6 The Working Group considered that the improvement of labour productivity statistics depended on better national statistics on output, and on the existence of corresponding data for employment or hours of work. Similarly, it was considered that the ability to compare the trend and level of productivity between one country and another improved with the use of comparable concepts for the definition of output, input and prices, and the wider use of international standards in existence in these fields. The standards being referred to, in particular, were those of the International Conference of Labour Statisticians in respect of input, the United Nations System of National Accounts in respect of output, and the International Standard Industrial Classification in respect of scope and classification.

ABS DEFINITIONS, METHODOLOGY AND SOURCES

14.7 The ABS recognises that the level of gross domestic product and changes in real gross domestic product are a function of many different factors including capital, labour, technical knowledge, scale of production and managerial efficiency. Changes in any one of these factors can result in productivity changes. While it is impossible to objectively measure the role of these factors separately, it is recognised that one of the most important and widely accepted analytical series, which is a measure of labour productivity, is real gross domestic product per hour worked.

14.9 As partial measures of productivity, labour productivity indexes implicitly reflect the other factors of production, such as the contribution of capital and other factors affecting production such as technological change. When multiple factors of production such as labour and capital are explicitly considered as inputs, this is termed multi-factor productivity (MFP), which is measured as GDP per combined unit of labour and capital. Therefore, MFP is often also used in productivity analysis, and for this reason, the ABS also publishes annual indexes of MFP for the market sector in Australian System Of National Accounts (cat. no. 5204.0). In addition the ABS produces annual experimental MFP estimates at the industry level for industries within the market sector, which are available from Experimental Estimates of Industry Multifactor Productivity (cat. no. 5260.0.55.002). The choice of which productivity measure to use depends on what analysis is being performed.

LABOUR INPUT

14.10 In addition to considering types of analyses, the choice of productivity measure should also consider data availability. For many purposes it would be desirable for changes in the quality of labour employed (such as the proportion of skilled to unskilled employees) to be reflected in measures of labour input. However, because of data limitations, the most common measure of labour input used in compiling the estimates presented in Australian System Of National Accounts(cat. no. 5204.0) and Australian National Accounts: National Income, Expenditure and Product (cat. no. 5206.0) is hours worked by total employed people. Sometimes, hours worked by employed people adjusted for their labour income is used. More sophisticated adjustments to labour input, such as adjusting for various skills or qualifications, become increasingly complex and would potentially require arbitrary weighting of each skill or qualification to determine an overall measure of the labour input.

14.12 The estimates of real gross domestic product used in the derivation of the ABS labour productivity statistics are annually reweighted chain Laspeyres volume measures. The concepts and definitions used in deriving chain volume estimates are explained in Chapter 6 of Australian National Accounts: Concepts, Sources and Methods (cat. no. 5216.0).